Bank of England raises growth forecast for first quarter to 1% as manufacturers report best orders since 1995

The UK economic recovery is 'building momentum' according to the Bank of England which has revised up its estimate of growth for the first quarter.

The Bank's monetary policy committee said it expected Britain's GDP growth to come in at 1 per cent for the first three months of 2014, compared with the fourth quarter of 2013, up slightly from its previous forecast for 0.9 per cent growth.

However, the MPC also said it expected a slight slowdown from that level in the second quarter of 2014.

UK economy: The Bank today revised up its estimate of growth for the first quarter to 1 per cent

In February the Bank upgraded its overall growth forecast for 2014 to show expansion of 3.4 per cent, which would be the country's fastest growth since 2007. Last year the British economy grew by 1.7 per cent.

The upward revision comes as manufacturers' total order books and domestic books grew at the fastest pace since 1995 in the three months to April - and business optimism saw its sharpest improvement since the 1970s, according to the latest CBI Industrial Trends Survey.

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The quarterly CBI survey of 405 manufacturers found that in the three months to April 38 per cent reported an increase in total orders and 17 per cent a decrease, giving a positive balance of 21 per cent, while the balance for new domestic orders was plus 17 per cent. Both figures were the highest since April 1995.

Meanwhile, confidence among manufacturers about the next quarter was increasing, with business optimism, growth expectations for domestic orders and output at the highest level since 1973.

CBI chief policy director Katja Hall said: 'Confidence is rapidly rising among British manufacturers, with a real sense of business optimism.

'Our industrial base is seizing a bigger role in the UK’s economic recovery, with output, orders and hiring all on the up.

'There are still bumps in the road ahead, with only a tepid recovery likely in the Eurozone, the pound creeping higher and a rapidly evolving situation in Ukraine. However, expectations for growth in the coming three months are positive and manufacturers plan to significantly ramp up investment in the year ahead.'

Optimism: Manufacturers' total order books and domestic books grew at the fastest pace since 1995

The BoE committee said it was 'possible' that a sustainable rise in real wages was on the way but were unsure on how much scope Britain's economy had to grow without generating inflation.

'There was considerable uncertainty about the amount of slack remaining within the economy and committee members had a range of opinions on this and the outlook for inflation in the medium-term,' the minutes said.

The 'slack' is a key measure taken into account by policy-makers when deciding on the path of interest rates, with a greater degree of slack meaning the economy still needs more help from low rates to get closer to full capacity.

British inflation dropped to 1.6 per cent in March from February's 1.7 per cent - the lowest level since October 2009.

The BoE policymakers voted unanimously to maintain UK interest rates at record lows of 0.5 per cent again this month, with no indications that any increase is likely in the near future.

But there were a 'range of views' about the impact of the self-employment on the sharp movement in jobs figures, as some members of the committee argued that a rise in self-employment could be evidence of underemployment.

That would imply a greater degree of slack in the economy than the headline jobs figures would suggest.

Martin Beck, senior economic adviser to the EY ITEM Club said: 'The minutes for April’s MPC meeting saw little tangible change in the key messages around monetary policy, with the MPC once again unanimous in keeping policy unchanged.

'April’s meeting occurred before the release of the most recent labour market data (which showed unemployment dipping below 7 per cent), so policy continued to be guided by ‘Phase 1’ of forward guidance.'

And added: 'With prospects for inflation looking benign, thanks in part to the stronger pound, April’s minutes offer few reasons to think that the Bank Rate won’t remain on hold for a considerable time yet. We continue to think that rates will stay at their current 0.5 per cent until Q3 2015.'

The news come as official figures today showed Britain's budget deficit fell to its lowest since the financial crisis.

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BoE raises growth forecast for first quarter to 1% as manufacturers report best orders since 1995